Question
A firm has the following investment alternatives and has the following cash inflows. Each costs $130,000, investments C and D are mutually exclusive, and the
A firm has the following investment alternatives and has the following cash inflows. Each costs $130,000, investments C and D are mutually exclusive, and the firms cost of capital is 9%.
| Cash Flows | ||||
| Year | A | B | C | D |
| 1 | $45,000 | $43,000 | $147,000 | - |
| 2 | 45,000 | 50,000 | - | - |
| 3 | 45,000 | 60,000 | - | $176,000 |
a. What is the net present value of each investment? Which investment(s) should the firm make and why? b. What is the internal rate of return on each investment? Which investment(s) should the firm make and why? c. If the firm could reinvest the $147,000 earned in year 1 from investment C at 12%, would that affect your answers? d. The payback method would select which investment? Why?
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International Financial Management
Authors: Jeff Madura
11th Edition
0538482966, 9780538482967
